Survey: Investors Shifting to Offense on Climate as Attention Turns to Low Carbon Transition Opportunities
Nuveen, the $1.3 trillion AUM investment manager of TIAA, announced today the release of ‘Think EQuilibrium,’ its annual survey examining institutional investors’ assessment and outlook for major market trends, risks, challenges and opportunities. This year’s survey indicated that climate change-related factors have emerged both as a major risk category for investors, but are also increasingly viewed as a source of investment opportunity.
For the study, Nuveen surveyed 800 global institutional investors and consultants, including representing funds of at least $500 million, including corporate pensions, public/governmental pensions, insurance companies, endowments and foundations, superannuation funds, sovereign wealth funds, and central banks across North America, Europe, the Middle East and Asia Pacific. 55% of respondents represented organizations with assets of over $10 billion.
Investors in the survey indicated that climate risk is now one of the most significant factors considered by investors. On a 5-year time horizon, climate risk was cited by 50% of investors as one of the most influential trends likely to shape portfolios, second only to “Technology” at 51% (multiple answers allowed), and significantly ahead of third place “Private markets” at 34%. Nearly three quarters (71%) of the survey respondents agreed with the statement “Climate risk is investment risk.” In line with these results, investors appear to have mobilized to act on these risks, with 79% indicating they are addressing climate risk in their portfolios, or plan to within the next two years, 72% making a net zero commitment, 80% defining climate objectives and a roadmap, and 72% setting climate targets.
While playing defense on climate risk has clearly emerged as a key focus for investors, many now appear to be shifting attention the climate-related opportunities as well. A strong majority of respondents (86%) expect the transition to a low carbon economy to present new investment opportunities. This is particularly apparent in areas such private markets, with 73% of investors in private infrastructure investors identifying clean energy as their top investment choice for allocation increases over the next two years.
Amy O’Brien, Global Head of Responsible Investing at Nuveen, said:
“Investors want to protect their portfolios from threats posed by more expensive prices for clean energy, disruptions to business activity, and other direct and indirect consequences of climate change. But they also are identifying ways to invest in technologies, infrastructure and other assets that will facilitate the transition to a low carbon economy.”
Another key finding of the survey was the extent to which ESG investing has become mainstream. 87% of investors now report that they consider ESG factors when making investment decisions. Key drivers of ESG integration included reputational risk, positive impact, better risk-adjusted returns and stakeholder pressure. While data quality continues to be seen as a barrier to ESG integration, regulatory changes and ongoing data enhancements appear to be helping.
The survey also indicated that social factors are emerging as an influential force on respondents investments, as well as on their own behavior. 52% of respondents agreed that investors can impact social inequality through investment choices, and 49% said that they invest in social investments, or plan to within the next 2 years. The top investible impact opportunities identified included community infrastructure projects addressing inequalities, fintech innovations addressing financial inclusion, investments focused on diversity and inclusion efforts, and affordable housing solutions. Over three quarters of respondents reported that they are, or are considering setting clear goals and targets for diversity, equity and inclusion (DEI) hiring, retention and talent development for their own teams, and more than half indicated that DEI metrics influence their manager selection process.
“Investors globally are increasingly aware of the business risks that lack of diversity and inclusion in the workplace can pose, as well as the benefits of a diverse workforce for innovation and financial problem-solving.”
Click here to view the Nuveen survey results.